HSBC Bank USA, National Ass'n v. Blendheim (In Re Blendheim) , 803 F.3d 477 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN THE MATTER OF: ROBERT S. Nos. 13-35354
BLENDHEIM AND DARLENE G. 13-35412
BLENDHEIM,
Debtor, D.C. No.
2:11-cv-02004-
MJP
HSBC BANK USA, National
Association, as Indenture Trustee of
the Fieldstone Mortgage Investment OPINION
Trust, Series 2006-1,
Appellant/Cross-Appellee,
v.
ROBERT S. BLENDHEIM; DARLENE G.
BLENDHEIM,
Appellees/Cross-Appellant.
Appeal from the United States District Court
for the Western District of Washington
Marsha J. Pechman, Chief District Judge, Presiding
Argued and Submitted
October 7, 2014—Seattle, Washington
Filed October 1, 2015
Before: Richard A. Paez, Jay S. Bybee,
and Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Bybee
2 IN THE MATTER OF: BLENDHEIM
SUMMARY*
Bankruptcy
Affirming in part and vacating in part the district court’s
judgment, the panel held that an amendment to the
Bankruptcy Code¯barring debtors from receiving a
discharge at the conclusion of their Chapter 13 reorganization
if they received a Chapter 7 discharge within four years of
filing for Chapter 13 relief¯does not render such “Chapter
20” debtors ineligible for Chapter 13’s lien-voidance
mechanism, which allows a debtor to void or modify certain
creditor liens on the debtor’s property, permanently barring
the creditor from foreclosing on that property.
The panel held that the bankruptcy court properly voided
a creditor’s lien under § 506(d) of the Bankruptcy Code. The
panel held that under § 506(d), if a creditor’s claim has not
been “allowed” in the bankruptcy proceeding, then a lien
securing the claim is void.
The panel held that the voiding of the creditor’s lien was
permanent such that the lien would not be resurrected upon
the completion of the debtors’ Chapter 13 plan. Agreeing
with the Fourth and Eleventh Circuits, the panel held that 11
U.S.C. § 1328(f), enacted as part of the Bankruptcy Abuse
Prevention and Consumer Protection Act in 2005, did not
render Chapter 20 debtors ineligible to void liens permanently
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
IN THE MATTER OF: BLENDHEIM 3
upon the completion of their Chapter 13 plans. The panel
concluded that a discharge is not necessary to close a Chapter
13 case, and lien voidance does not subvert Congress’s intent
in enacting BAPCPA.
The panel held that the voiding of the lien comported with
due process because the creditor received notice that its rights
might be affected when the debtors objected to its proof of
claim.
The panel held that under the totality of the
circumstances, the bankruptcy court did not clearly err in
concluding that the Chapter 13 petition was filed in good
faith. Agreeing with the Eleventh Circuit, the panel rejected
a per se rule prohibiting a debtor from seeking the benefits of
Chapter 13 reorganization during the post-discharge period
when his Chapter 7 case remains open and pending. The
panel affirmed the bankruptcy court’s lien-voidance order,
plan confirmation order, and plan implementation order.
Vacating the district court’s denial of attorneys’ fees, the
panel held that the district court lacked jurisdiction to
determine whether the debtors were entitled to attorneys’ fees
because this issue was not addressed, in the first instance, by
the bankruptcy court.
COUNSEL
Christopher M. Alston (argued) and W. Adam Coady, Foster
Pepper PLLC, Seattle, Washington, for Appellant/Cross-
Appellee.
4 IN THE MATTER OF: BLENDHEIM
Taryn M. Darling Hill (argued) and David F. Betz, Impact
Law Group, Seattle, Washington, for Appellees/Cross-
Appellants.
OPINION
BYBEE, Circuit Judge:
Robert and Darlene Blendheim are colloquially known as
“Chapter 20” debtors. Like many others who sought
bankruptcy relief during the housing crisis, they took
advantage of the bankruptcy tools available under Chapter 7
and then filed for Chapter 13 relief. One of the tools
available in a Chapter 13 reorganization is lien voidance, or
“lien stripping.” Ordinarily, the Bankruptcy Code permits
Chapter 13 debtors to void or modify certain creditor liens on
the debtor’s property, permanently barring the creditor from
foreclosing on that property. However, a 2005 amendment to
the Bankruptcy Code bars Chapter 20 debtors from receiving
a discharge at the conclusion of their Chapter 13
reorganization if they received a Chapter 7 discharge within
four years of filing for Chapter 13 relief. 11 U.S.C.
§ 1328(f).
In this case, we are tasked with deciding whether by
making Chapter 20 debtors like the Blendheims ineligible for
a discharge, Congress also rendered them ineligible for
Chapter 13’s lien-voidance mechanism. This question has
divided bankruptcy courts in our circuit and divided
bankruptcy courts, bankruptcy appellate panels, district
courts, and courts of appeals throughout the country. The
bankruptcy court below concluded that HSBC’s lien on the
Blendheims’ home would be void upon the successful
IN THE MATTER OF: BLENDHEIM 5
completion of their Chapter 13 plan, and the district court
affirmed. We agree with the district court’s conclusion that
discharge ineligibility does not prohibit the Blendheims from
taking advantage of the lien-voidance tools available in a
typical Chapter 13 proceeding, and therefore affirm.
I. BANKRUPTCY PROCEEDINGS
A. Claim Disallowance and Lien Voidance
In 2007, Robert and Darlene Blendheim filed for
bankruptcy under Chapter 7 of the Bankruptcy Code. The
Blendheims eventually received a discharge of their
unsecured debts in 2009. The day after receiving the
discharge in their Chapter 7 case, the Blendheims filed a
second bankruptcy petition under Chapter 13 to restructure
debts relating to their primary residence, a condominium in
West Seattle. In their schedule, the Blendheims listed their
condo at a value of $450,000, subject to two liens: a first-
position lien securing a debt of $347,900 owed to HSBC
Bank USA, N.A., and a second-position lien securing a debt
of $90,474 owed to HSBC Mortgage Services. The first-
position lien is the only interest at issue in this appeal.
The first-position lien holder (“HSBC”), represented in
bankruptcy proceedings by its servicing agent, filed a proof
of claim in the Chapter 13 proceeding seeking allowance of
its claim, which authorizes a creditor to participate in the
bankruptcy process and receive distribution payments from
the estate. The Blendheims filed an objection to the claim on
the basis that, although HSBC properly attached a copy of the
relevant deed of trust to its proof of claim, HSBC failed to
6 IN THE MATTER OF: BLENDHEIM
attach a copy of the promissory note.1 The Blendheims also
alleged that a copy of the promissory note they had
previously received appeared to bear a forged signature. For
reasons unknown, HSBC never responded to the Blendheims’
objection to its proof of claim. The deadline for responding
passed, and in November 2009, hearing no objection from
HSBC, the bankruptcy judge entered an order disallowing
HSBC’s claim. Even after the Blendheims served HSBC and
its counsel with a copy of the disallowance order, HSBC took
no action in response. Instead, it withdrew its pending
motion and requested no future electronic notifications from
the court.
In April 2010, the Blendheims filed an adversary
proceeding complaint seeking, among other things, to void
HSBC’s first-position lien pursuant to 11 U.S.C. § 506(d),
which states that “[t]o the extent that a lien secures a claim
against the debtor that is not an allowed secured claim, such
lien is void.” The Blendheims contended that because
HSBC’s claim had been disallowed, its lien secured a claim
that is “not an allowed secured claim” and thus the lien could
be voided. The bankruptcy court held a hearing the following
month, specifically advising HSBC to take action to address
the disallowance order. Voidance of the lien posed a more
drastic consequence than simple disallowance of HSBC’s
claim in the bankruptcy proceeding: voiding the lien would
eliminate HSBC’s state-law right of foreclosure.
1
The Blendheims objected pursuant to Rule 3001 of the Federal Rules
of Bankruptcy Procedure, which requires that “[w]hen a claim, or an
interest in property of the debtor securing the claim, is based on a writing,
a copy of the writing shall be filed with the proof of claim.” Fed. R.
Bankr. P. 3001(c)(1).
IN THE MATTER OF: BLENDHEIM 7
Even though the threat of voidance loomed, a year passed,
and still HSBC took no action to set aside the order. Once
more, the court advised HSBC to file a motion to set aside the
disallowance order. This time, almost a year and a half after
the disallowance order was entered, HSBC responded. In
April 2011, HSBC filed a motion for reconsideration of the
disallowance order, alleging grounds of mistake,
inadvertence, surprise, excusable neglect, due process
violations, and inadequate service. Following a hearing, the
bankruptcy court denied the motion. The court explained that
HSBC presented “no argument or evidence as to why its
failure to respond was due to mistake, inadvertence, surprise,
or excusable neglect,” and “[HSBC] has not provided any
rationale for waiting nearly 18 months after entry of the
[disallowance] order to request reconsideration.” It therefore
declined to set aside the disallowance order.
The Blendheims subsequently moved for summary
judgment, once again seeking lien voidance. HSBC filed a
response, arguing that it would be improper and inequitable
to void the lien after the claim was disallowed for mere
failure to respond. In support of its argument, HSBC pointed
to a Seventh Circuit case called In re Tarnow, 749 F.2d 464(7th Cir. 1984), which had similarly dealt with the voidance
of liens under § 506(d). As HSBC explained, there, the
Seventh Circuit declined to permit a court to void a lien under
§ 506(d) where the creditor’s claim had been disallowed for
untimely filing. The court concluded that because a secured
creditor is not required to file a proof of claim at all, and may
instead look to its lien for satisfaction of the debt, destruction
of a lien under § 506(d) is a “disproportionately severe
sanction” for an untimely filed claim. HSBC argued that
destruction is equally inappropriate in the case of simple
default.
8 IN THE MATTER OF: BLENDHEIM
The bankruptcy court held a hearing and offered an oral
ruling at the conclusion of argument. The bankruptcy court
acknowledged that voiding HSBC’s lien under § 506(d)
“based on a default gives the Court pause.” However, the
court explained, the text of § 506(d) seemed clearly to
contradict HSBC’s contentions: “[T]he trouble with the
lender’s arguments here [is] they would just blue pencil
506(d) right out of the equation. 506(d) very clearly says if
the secured debt . . . is purporting to secure a disallowed
claim, then the lien can be avoided.” The court
acknowledged that “there’s plenty of case law that says, even
in a [Chapter] 13 . . . the secured creditor can just take a pass
on the whole proceeding” without imperiling his lien. But it
distinguished Tarnow, explaining that while that case
involved a late-filed claim, here HSBC had filed a timely
claim in the bankruptcy proceeding:
The claim [in Tarnow] was only disallowed
because it was late in a situation where they
didn’t need to file a claim at all. . . . So it’s as
if the secured creditor in Tarnow didn’t file
the claim at all.
That’s substantially different than what we
have here where the claim was filed. There
was a[n] objection to it that went to the
substance, did not have anything to do with
the form of the claim or the lateness of the
claim.
And regardless of arguments now as to
whether that would have been a meritorious
objection if it had been responded to, [HSBC]
just slept on its rights . . . .
IN THE MATTER OF: BLENDHEIM 9
Because HSBC’s claim had been disallowed and the court
had found no legitimate basis for setting aside the
disallowance, the disallowance was “clearly a predicate under
506(d) for disallowance of the lien . . . and therefore the lien
should be set aside.” The court ordered that “upon Debtors’
completion of a Bankruptcy, this order shall be self-executing
and the subject Deed of Trust . . . is void pursuant to
11 U.S.C. § 506(d), and hereby cancelled.”
B. Plan Confirmation and Permanent Lien-Voidance
The parties then proceeded to the plan confirmation
process. The bankruptcy court rejected several proposed
plans, ultimately confirming the Blendheims’ eleventh
amended plan. The bankruptcy court’s discussion of its
reasons for rejecting the Blendheims’ ninth amended plan,
however, is relevant here.
After the Blendheims filed their proposed ninth amended
plan, HSBC objected on two grounds. First, HSBC argued
that the Blendheims “improperly seek to cancel and void
[HSBC’s] lien upon completion of the . . . Plan.” According
to HSBC, even if a lien is properly voided under § 506(d),
that lien must be reinstated upon the completion of a Chapter
13 plan. This is because the Blendheims could only obtain
permanent voidance of the lien through a discharge, and the
Blendheims were statutorily ineligible for such a discharge
because they had already received a Chapter 7 discharge
within the previous four years. See 11 U.S.C. § 1328(f)
(“[T]he court shall not grant a discharge of all debts provided
for in the plan or disallowed under section 502, if the debtor
has received a discharge in a case filed under Chapter 7 . . .
during the 4-year period preceding the date of the order for
10 IN THE MATTER OF: BLENDHEIM
relief . . . .”). Second, HSBC objected that the plan was not
filed in good faith.
The bankruptcy court rejected HSBC’s argument that a
lien may not be voided upon plan completion. Recognizing
a split of authority among lower courts, the court observed
that a Chapter 13 debtor’s ability to void a lien does not
depend on the debtor’s eligibility for a discharge. It
concluded that “it is not per se prohibited for Debtors to
propose a Chapter 13 plan stripping the First or Second
Position Lien on their Residence, notwithstanding their lack
of eligibility for a Chapter 13 discharge.” The court went on
to address good faith. It concluded that the Chapter 13
petition had been filed in good faith, as the Blendheims had
valid reorganization goals and did not appear to be “serial
repeat filers” who were “systematically and regularly abusing
the bankruptcy system.” However, the court ultimately
concluded that the plan had not been proposed in good faith;
the plan would authorize the Blendheims to void both the
first- and second-position liens, even though the second-
position lien would become fully secured (and thus legally
enforceable) at the moment HSBC’s first-position lien was
deemed void. Accordingly, the court rejected the ninth
amended plan, but permitted the Blendheims to amend.
In April 2012, the bankruptcy court confirmed the
Blendheims’ eleventh amended Chapter 13 plan. This plan
reinstated the second-position lien, the voidance of which had
caused the previous plan to fail. The court concluded that the
reinstatement of the second-position lien “cure[s] what [the
court] found was in bad faith before,” and thus confirmed the
plan. Importantly, the confirmed plan replicated the ninth
amended plan in permitting the Blendheims to permanently
void HSBC’s first-position lien upon the completion of the
IN THE MATTER OF: BLENDHEIM 11
plan. The court subsequently issued an order implementing
the plan.
II. APPELLATE PROCEEDINGS
A. District Court Proceedings
HSBC appealed to the U.S. District Court for the Western
District of Washington. The district court concluded that it
lacked jurisdiction over the disallowance order and order
denying reconsideration because HSBC failed to timely file
notice of appeal with respect to those orders. The district
court affirmed the remaining bankruptcy court orders in their
entirety.
First, the court considered whether the bankruptcy court
had properly voided HSBC’s lien. The court assumed that
the initial voidance of the lien under § 506(d) was proper,
turning directly to the question whether the Blendheims could
make the voidance “permanent” in the absence of a discharge.
The court rejected HSBC’s argument that a debtor must be
eligible for a discharge in order to accomplish “lien
stripping,” or permanent voidance of the lien. Observing an
“emerging consensus in this Circuit” that lien stripping can be
accomplished through plan completion, the court concluded
that the Bankruptcy Code permitted the Blendheims
permanently to void HSBC’s lien whether or not they were
entitled to a discharge. The court reasoned that it “should not
impose a discharge requirement on the debtor’s ability to strip
a lien when none is required by statute.” Concluding
otherwise, the court stated, “creates an extremely harsh result:
a debtor who successfully completed a Chapter 13 plan,
obeying all the requirements approved by the court, would
see many of his debts spring back to life.”
12 IN THE MATTER OF: BLENDHEIM
The district court next rejected HSBC’s argument that it
was denied due process. The court explained that the lien
was voided in an adversary proceeding, which granted HSBC
a “full and fair opportunity to litigate the issue.” The district
court then went on to reject HSBC’s argument that the
Blendheims’ Chapter 13 case was not filed in good faith,
explaining that the bankruptcy court’s findings that the
Blendheims had valid reorganization goals other than lien
stripping, did not file in order to defeat state court litigation,
and did not exhibit any egregious behavior, were not clearly
erroneous. Finally, the district court rejected the Blendheims’
request for attorneys fees.
B. Ninth Circuit Proceedings
HSBC timely appealed the district court’s affirmance of
the bankruptcy court’s orders permanently voiding HSBC’s
lien. The Blendheims cross-appealed, seeking a
determination that the district court erred in its denial of
attorneys fees. Several months after the appeal was
docketed, the Blendheims successfully completed their plan
payments, meaning that they were poised to permanently void
HSBC’s lien upon the closure of their case in the bankruptcy
court. We granted HSBC’s motion for an emergency stay of
the bankruptcy court’s order closing the case, pending the
outcome of its appeal to this court.
III. STATUTORY FRAMEWORK
There are several Bankruptcy Code provisions at issue in
this case. To assist the reader, we begin by walking through
the relevant chapters and sections.
IN THE MATTER OF: BLENDHEIM 13
A. The Life of a Bankruptcy Case
A bankruptcy case begins with the filing of a petition and
the creation of an estate, which comprises the debtors’ legal
and equitable interests in property. 11 U.S.C. § 541; Fed. R.
Bankr. P. 1002(a). The filing of the petition triggers an
automatic stay, prohibiting all entities from making collection
efforts against the debtor or the property of the debtor’s
estate. 11 U.S.C. § 362. To collect on a debt, a creditor must
hold a “claim,” or a right to payment, id. § 101(5), which has
been “allowed” by the bankruptcy court, id. § 502. Every
claim must go through the allowance process set forth in
11 U.S.C. § 502 before the claim holder is entitled to
participate in the distribution of estate assets. The bankruptcy
court may decline to allow—or “disallow”—a claim for a
variety of reasons. See, e.g., id. § 502(b)(1) (disallowing
claims “unenforceable against the debtor”); id. § 502(b)(9)
(disallowing tardily filed proof of claim). But importantly,
for creditors holding liens secured by property, filing a proof
of claim and participating in the allowance process—indeed,
participating in the bankruptcy process as a whole—is
completely voluntary. A creditor with a lien on a debtor’s
property may generally ignore the bankruptcy proceedings
and decline to file a claim without imperiling his lien, secure
in the in rem right that the lien guarantees him under non-
bankruptcy law: the right of foreclosure. See U.S. Nat’l Bank
in Johnstown v. Chase Nat’l Bank of N.Y.C., 331 U.S. 28, 33
(1947) (a secured creditor “may disregard the bankruptcy
proceeding, decline to file a claim and rely solely upon his
security if that security is properly and solely in his
possession”).
The Bankruptcy Code contains two chapters designed to
give relief exclusively to individual debtors: Chapters 7 and
14 IN THE MATTER OF: BLENDHEIM
13. To decide which chapter to file under, a debtor must
compare his means and goals against the purposes of each
chapter. In a Chapter 7 bankruptcy proceeding, also called a
“liquidation,” a bankruptcy trustee immediately gathers up
and sells all of a debtor’s nonexempt assets in the estate,
using the proceeds to repay creditors in the order of the
priority of their claims. 11 U.S.C. §§ 704(a)(1), 726. The
bankruptcy estate does not, however, include any wages or
assets that a debtor acquires after the bankruptcy filing. Id.
§ 541(a)(1). Provided the debtor meets all the requirements,
the court may then grant the debtor a discharge, which
releases a debtor from personal liability on certain debts. Id.
§ 727. Thus, Chapter 7 offers debtors the chance to “make a
‘fresh start,’” and “a clean break from his financial past, but
at a steep price: prompt liquidation of the debtor’s assets.”
Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).
By contrast, a Chapter 13 proceeding, often called a
“reorganization,” is designed to encourage financially
overextended debtors to use current and future income to
repay creditors in part, or in whole, over the course of a three-
to five-year period. See Harris, 135 S. Ct. at 1835. Only
debtors with a “regular income,” which is “sufficiently stable
and regular” to enable them to make payments under a plan,
are eligible for Chapter 13 reorganization. 11 U.S.C.
§§ 101(30), 109(e). Unlike Chapter 7 proceedings, where a
debtor’s nonexempt assets are sold to pay creditors, Chapter
13 permits debtors to keep assets such as their home and car
so long as they make the required payments and otherwise
comply with their obligations under their confirmed plan of
reorganization.
A Chapter 13 debtor formulating a proposed plan of
reorganization must include certain mandatory provisions, but
IN THE MATTER OF: BLENDHEIM 15
also has at his disposal various discretionary provisions—the
“tools” in the reorganization toolbox. See In re Cain,
513 B.R. 316, 322 (B.A.P. 6th Cir. 2014). Mandatory
provisions, which all Chapter 13 plans must contain in order
to qualify for confirmation, are set forth in §§ 1322(a) and
1325 of the Bankruptcy Code. Among other things, these
sections require a plan to be “proposed in good faith,” 11
U.S.C. § 1325(a)(3); satisfy the “best interests of creditors”
test, which requires that the value distributed to holders of
allowed, unsecured claims be no less than the amount that
would have been paid if the estate were liquidated under
Chapter 7, id. § 1325(a)(4); and provide for the submission of
all or a portion of the debtor’s future earnings “as is necessary
for the execution of the plan,” id. § 1322(a)(1). Discretionary
provisions that a debtor may incorporate in his plan are set
forth in § 1322(b). These tools include the curing or waiving
of a default, id. § 1322(b)(3); the “assumption, rejection, or
assignment of any executory contract or unexpired lease,” id.
§ 1322(b)(7); and the “modif[ication of] the rights of holders
of secured claims, other than a claim secured only by a
security interest in real property that is the debtor’s principal
residence, or of holders of unsecured claims,” id.
§ 1322(b)(2). The last provision, providing for the
modification of creditors’ rights, is one of the most
advantageous tools available to Chapter 13 debtors. For
example, we have interpreted § 1322(b)(2) to permit debtors
to void liens on their homes to the extent that the lien is
wholly unsecured by the value of the home. In re Zimmer,
313 F.3d 1220, 1221 (9th Cir. 2002) (evaluating modification
of “unsecured claim[s],” as defined under § 506(a)).2
2
We express no view on whether the Supreme Court’s recent decision
in Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995 (2015), which
interpreted § 506(d) not to permit a Chapter 7 debtor to strip a wholly
16 IN THE MATTER OF: BLENDHEIM
Modification is a powerful tool; voidance—or
“avoidance”—of a lien permits debtors to nullify a creditor’s
in rem rights by effectively removing from a creditor his right
to foreclose on a property.
Another useful tool in a Chapter 13 reorganization, which
is also available in Chapter 7, is the discharge. 11 U.S.C.
§§ 727, 1328. A Chapter 13 debtor seeking a discharge
typically proposes a plan in which the discharge is granted at
the end of the proceeding, after the debtor completes all
required payments under the plan. Id. § 1328(a); cf. id.
§ 1328(b) (permitting the court to grant a discharge to a
debtor who has not completed all payments under the plan
under certain limited circumstances). A discharge releases
debtors from personal liability on claims and enjoins creditors
from taking any action against the debtor in the debtor’s
personal capacity. Id. § 524(a). The Bankruptcy Code
authorizes debtors to receive a discharge of unsecured debt
(such as credit card debt) or secured debt (such as a mortgage
on a home). Ordinarily, in case of debtor default on a
mortgage, a creditor is not limited to a right of foreclosure on
the property; a creditor may also sue the debtor personally for
any deficiency on the debt that remains after foreclosure. See
Johnson v. Home State Bank, 501 U.S. 78, 82 (1991). The
discharge eliminates the creditor’s ability to proceed in
personam against the debtor whether the debt is secured or
unsecured; in the case of a secured debt, the creditor retains
the ability to foreclose on the property but can no longer
proceed against the debtor personally. Id.; see also 4 Collier
on Bankruptcy ¶ 524.02[2][a].
underwater lien, affects our precedent in this area. As we note infra at
Part IV.A, Caulkett does not undermine—and, in fact, supports—our
conclusion in this case.
IN THE MATTER OF: BLENDHEIM 17
If a debtor’s proposed plan conforms with the mandatory
requirements described above and all voluntary provisions
similarly satisfy the “good faith” and “best interests of
creditors” tests, then the bankruptcy court will confirm the
Chapter 13 plan. The Bankruptcy Code provides that the
“provisions of a confirmed plan bind the debtor and each
creditor,” 11 U.S.C. § 1327, such that any issue decided
under a plan is entitled to res judicata effect. Bullard v. Blue
Hills Bank, 135 S. Ct. 1686, 1692 (2015) (“Confirmation has
preclusive effect, foreclosing relitigation of any issue actually
litigated by the parties and any issue necessarily determined
by the confirmation order.” (internal quotation marks
omitted)). If the debtor complies with his obligations under
the confirmed plan and makes all the required payments, the
court will grant the debtor a discharge—if appropriate—and
close the case. 11 U.S.C. § 350(a).
Many debtors, however, fail to complete a Chapter 13
plan successfully, often because they cannot make payments
on time. Recognizing this, the Bankruptcy Code permits
debtors who fail to complete their plans to convert their
Chapter 13 case to a case under a different chapter, or dismiss
their case entirely. Id. § 1307(a)–(b). But importantly, upon
dismissal or conversion of a case, a debtor loses any benefits
promised in exchange for the successful completion of the
plan—whether in personam, such as discharge, or in rem,
such as lien voidance. The Code treats any lien voided under
a Chapter 13 plan as reinstated upon dismissal or conversion,
restoring to creditors their state law rights of foreclosure on
the debtor’s property. See id. §§ 348(f)(1)(C)(i);
349(b)(1)(C). Section 348 of the Bankruptcy Code governs
conversion of a Chapter 13 case to a case under a different
chapter. It provides that a creditor holding a security interest
18 IN THE MATTER OF: BLENDHEIM
“as of the date of the filing of the [Chapter 13] petition”3 shall
“continue to be secured,” meaning that a creditor’s lien will
be restored to him upon conversion. Id. § 348(f)(1)(C)(i).
Dismissal of a Chapter 13 case has a similar effect—§ 349
provides that any lien stripped under § 506(d) will be
reinstated upon dismissal of the case, unless a court orders
otherwise. Id. § 349(b)(1)(C). In effect, conversion or
dismissal returns to the creditor all the property rights he held
at the commencement of the Chapter 13 proceeding and
renders him free to exercise any nonbankruptcy collection
remedies available to him. See 3 Collier on Bankruptcy
¶ 349.01[2].
B. BAPCPA
In 2005, Congress enacted the Bankruptcy Abuse
Prevention and Consumer Protection Act (BAPCPA), Pub. L.
No. 109-8, 119 Stat. 23 (2005), to make several significant
changes to the Bankruptcy Code. One of Congress’s
purposes in enacting BAPCPA was “to correct perceived
abuses of the bankruptcy system.” Milavetz, Gallop &
Milavetz, P.A. v. United States, 559 U.S. 229, 231–32 (2010);
see also H.R. Rep. 109-31 (I), at 2 (2005) (explaining that the
enactment also sought to “ensure that the system is fair for
both debtors and creditors”). Included among the provisions
“intended to provide greater protections for creditors,”
according to the House Report, are reforms “prohibiting
3
Section 348(f)(1)(C)(i) indicates that conversion preserves the security
of any creditor who held a security “as of the date of the filing of the
petition.” The Supreme Court recently clarified that the same phrase—“as
of the date of filing of the petition”—in the context of § 348(f)(1)(A),
refers to the Chapter 13 petition filing date. Harris, 135 S. Ct. at 1837.
There is no reason to interpret the phrase differently in the context of
§ 348(f)(1)(C)(i).
IN THE MATTER OF: BLENDHEIM 19
abusive serial filings and extending the period between
successive discharges.” H.R. Rep. No. 109-31(I), at 16
(2005). One of BAPCPA’s new provisions extending the
period between successive discharges appears in Chapter 13,
§ 1328(f): “the court shall not grant a discharge of all debts
provided for in the plan . . . if the debtor has received a
discharge in a case filed under chapter 7, 11, or 12 of this title
during the 4-year period preceding the date of the order for
relief under this chapter.” 11 U.S.C. § 1328(f)(1). As
relevant here, this provision bars a Chapter 13 debtor from
obtaining a discharge if he has received a Chapter 7 discharge
within the past four years. Debtors who have sought
sequential relief under Chapters 7 and 13, and are thus subject
to § 1328(f)’s prohibition on successive discharges, are
termed “Chapter 20” debtors.
Significantly, § 1328(f) does not prohibit a debtor from
filing a Chapter 13 petition after receiving a Chapter 7
discharge, and so nothing prevents a debtor from taking
advantage of the other Chapter 13 tools available to him,
apart from discharge. See 8 Collier on Bankruptcy
¶ 1328.06[1]. For example, a discharge-ineligible debtor may
use Chapter 13 to cure a default or “seek protection of the
bankruptcy court and the automatic stay while paying debts
in an orderly fashion through a plan.” Id. Thus, Chapter 20
debtors are permitted to take advantage of many of Chapter
13’s restructuring tools, notwithstanding BAPCPA’s
amendments. The question presented in this case is whether
the Chapter 20 debtor’s ineligibility for a discharge also
renders him ineligible to void a lien permanently upon the
completion of his Chapter 13 plan. We turn to this difficult
question.
20 IN THE MATTER OF: BLENDHEIM
IV. DISCUSSION
As the bankruptcy court below aptly summarized, this
case presents “unique issues stemming from the almost
bizarre lack of diligence by [HSBC] early on in the case.”
HSBC’s inexplicable failure to respond to the bankruptcy
court’s order disallowing its claim in the bankruptcy
proceeding has generated a litany of issues, including several
questions of first impression. In Part A, we first address
whether the bankruptcy court properly voided HSBC’s lien
under § 506(d) of the Bankruptcy Code. Next, we consider
in Part B whether the voiding of that lien is permanent such
that the lien will not be resurrected upon the completion of
the Blendheims’ Chapter 13 plan. This is the novel “Chapter
20” question. In Part C, we determine whether the voiding of
the lien comports with due process. Finally, in Part D, we
address whether the bankruptcy court clearly erred in
concluding that the Blendheims’ Chapter 13 petition was filed
in good faith.
Before proceeding with our discussion of these questions,
we briefly examine the justiciability of HSBC’s claims.
Because HSBC failed timely to appeal the order disallowing
its claim and order denying reconsideration to the district
court, we, like the district court, lack jurisdiction over these
orders. See In re Mouradick, 13 F.3d 326, 327 (9th Cir.
1994) (“[T]he untimely filing of a notice of appeal deprives
the appellate court of jurisdiction to review the bankruptcy
court’s order.”). But HSBC’s failure to timely appeal these
orders does not, as the Blendheims have suggested, render
HSBC’s appeal of the bankruptcy court’s other orders moot.
The Blendheims are correct that the unappealed orders
preclude this Court from offering HSBC any remedy in
bankruptcy, but their argument misses the mark: HSBC is
IN THE MATTER OF: BLENDHEIM 21
not seeking a remedy in bankruptcy. Rather, as we address in
greater detail below, HSBC asks us to determine whether,
now that the Blendheims have successfully completed their
Chapter 13 plan, HSBC maintains a lien on the property such
that it may pursue its non-bankruptcy, state-law remedy—
foreclosure—against the Blendheims. Deciding this question
requires us to examine the validity of the bankruptcy court’s
lien-voidance order, plan confirmation order, and
implementation order, which together permanently extinguish
HSBC’s lien and right to foreclose. HSBC timely appealed
these orders, and reversal on appeal would grant effective
relief to HSBC by restoring its lien on the Blendheims’ home.
See Pub. Utils. Comm’n v. F.E.R.C., 100 F.3d 1451, 1458
(9th Cir. 1996) (“The court must be able to grant effective
relief, or it lacks jurisdiction and must dismiss the appeal.”).
Accordingly, this appeal is not moot.
A. § 506(d) Permits Voidance of HSBC’s Lien
First, we consider whether the bankruptcy court properly
voided HSBC’s lien pursuant to § 506(d). We requested
supplemental briefing from the parties on this question of first
impression. We review de novo the district court’s decisions
on an appeal from a bankruptcy court. In re AFI Holding,
Inc., 525 F.3d 700, 702 (9th Cir. 2008). A bankruptcy court’s
conclusions of law, including its interpretation of the
Bankruptcy Code, are reviewed de novo. Blausey v. U.S.
Trustee, 552 F.3d 1124, 1132 (9th Cir. 2009) (per curiam).
The provision at issue here, § 506(d), states in full:
To the extent that a lien secures a claim
against the debtor that is not an allowed
secured claim, such lien is void, unless—
22 IN THE MATTER OF: BLENDHEIM
(1) such claim was disallowed only under
section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured
claim due only to the failure of any entity to
file a proof of such claim under section 501 of
this title.
11 U.S.C. § 506(d). Both parties agree that neither of the
exceptions under § 506(d)(1)–(2) applies. Looking at the
main text of the provision, § 506(d) authorizes the voiding of
liens securing claims that have been deemed “not an allowed
secured claim.” The most straightforward reading of the text
suggests that if a creditor’s claim has not been “allowed” in
the bankruptcy proceeding, then “such lien is void.” “Void”
means “[o]f no legal effect” or “null.” Black’s Law
Dictionary (10th ed. 2014). Accordingly, Congress’s
language appears unequivocal: § 506(d)’s clear and manifest
purpose is to nullify a creditor’s legal rights in a debtor’s
property if the creditor’s claim is “not allowed,” or
disallowed.
The Supreme Court’s decision in Dewsnup v. Timm,
502 U.S. 410 (1992), confirms this interpretation. There, a
Chapter 7 debtor sought to use § 506(d) to void a creditor’s
lien on his property, arguing that the creditors’ claim was not
an “allowed secured claim” because it was undersecured—in
other words, the value of the property supporting the
creditor’s lien was less than the value of the claim. Id. at 413.
Dewsnup rejected the debtor’s argument, holding that
§ 506(d) did not void the lien on his property because the
creditor’s claim had been fully “allowed.” Id. at 417. The
Court reasoned that its reading “gives the provision the
simple and sensible function of voiding a lien whenever a
IN THE MATTER OF: BLENDHEIM 23
claim secured by the lien itself has not been allowed” and
“ensures that the Code’s determination not to allow the
underlying claim against the debtor personally is given full
effect by preventing its assertion against the debtor’s
property.” Id. at 415–16. Dewsnup’s holding clarifies that
§ 506(d)’s voidance mechanism turns on claim allowance.
See Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995, 1999
(2015) (affirming Dewsnup’s interpretation of § 506(d) in the
context of wholly underwater liens; “Because the Bank’s
claims here are both secured by liens and allowed under
§ 502, they cannot be voided under the definition given to the
term ‘allowed secured claim’ by Dewsnup”); see also 4
Collier on Bankruptcy ¶ 506.06[1][a] (“[Dewsnup]
determined that section 506(d) does not void liens on the
basis of whether they are secured under section 506(a), but on
the basis of whether the underlying claim is allowed or
disallowed . . . .”).
Here, it is undisputed that HSBC’s claim was not allowed.
Although HSBC filed a proof of claim, the bankruptcy court
expressly disallowed the claim after the Blendheims objected
and HSBC failed to respond. See 11 U.S.C. § 502(a) (“A
claim or interest . . . is deemed allowed, unless a party in
interest . . . objects.”); id. § 502(b) (“[I]f such objection to a
claim is made, the court, after notice and a hearing, shall
determine the amount of such claim . . . .”). The Blendheims
argue, and the bankruptcy court concluded in its hearing on
the Blendheims’ motion for summary judgment, that if a
claim is disallowed, then under § 506(d) and consistent with
Dewsnup, the claim’s associated lien is void. We agree.
Although voiding HSBC’s lien upon disallowance may seem
a harsh consequence, we find that Congress directed such an
outcome under § 506(d). Because HSBC’s claim was
disallowed, § 506(d) leaves HSBC with “a claim against the
24 IN THE MATTER OF: BLENDHEIM
debtor that is not an allowed secured claim,” and therefore its
lien is void.
HSBC has pointed to decisions from three of our sister
circuits, but these decisions are not contrary to our holding.
The Fourth, Seventh, and Eighth Circuits have concluded that
bankruptcy courts may not use § 506(d) to void liens whose
claims have been disallowed on the sole basis that their
proofs of claim were untimely filed. In re Shelton, 735 F.3d
747, 750 (8th Cir. 2013), cert. denied, 134 S. Ct. 2308 (2014);
In re Hamlett, 322 F.3d 342, 350 (4th Cir. 2003); In re
Tarnow, 749 F.2d 464, 466 (7th Cir. 1984). These courts
reason that voiding liens merely because the creditor did not
timely file a claim violates the long-standing, pre-Code
principle that “valid liens pass through bankruptcy
unaffected.” Shelton, 735 F.3d at 748 (discussing Dewsnup,
502 U.S. at 418); Hamlett, 322 F.3d at 347–48; Tarnow,
749 F.2d at 465; see U.S. Nat’l Bank, 331 U.S. at 33 (“[A
creditor] may disregard the bankruptcy proceeding, decline to
file a claim and rely solely upon his security if that security
is properly and solely in his possession.”).
Congress codified the principle that liens may pass
through bankruptcy in § 506(d)(2) (a lien securing a claim
that is “not an allowed secured claim” is void unless “such
claim is not an allowed secured claim due only to the failure
of any entity to file a proof of claim”). This provision, an
exception to § 506(d)’s voiding mechanism, means that “the
failure of the secured creditor to file a proof of claim is not a
basis for []voiding the lien of a secured creditor.” Tarnow,
749 F.2d at 467 (quoting S. Rep. No. 98-65, at 79 (1983)).
Our sister circuits concluded that a claim filed late is
tantamount to not filing a claim at all, and that therefore,
under pre-Code principles and the rationale of § 506(d)(2), an
IN THE MATTER OF: BLENDHEIM 25
untimely claim could not justify voiding the lien securing it.
Hamlett, 322 F.3d at 349 (“[W]e conclude, following the
reasoning set forth in Tarnow, that the failure to file a timely
claim, like the failure to file a claim at all, does not constitute
sufficient grounds for extinguishing a perfectly valid lien.”);
Shelton, 735 F.3d at 750 (same); Tarnow, 749 F.2d at 467.
These decisions are distinguishable from this case, where
HSBC timely filed its proof of claim. Because this case does
not concern a late-filed or non-filed claim, § 506(d)(2)’s
exception does not apply. Moreover, the equitable concerns
animating the decisions of our sister circuits do not apply
with the same degree of force to the case before us. A
creditor who files an untimely claim has little choice but to
accept the disallowance of his claim because under the
Bankruptcy Code, untimeliness is itself a basis for
disallowance. See 11 U.S.C. § 502(b)(9). Interpreting
§ 506(d) to void such a claim would automatically transform
a timing mistake into a death knell for the lien securing the
claim. Thus, our sister circuits concluded, such a lienholder
should forfeit the right to participate in the bankruptcy
proceeding—and lose the opportunity “to stand in line as an
unsecured creditor for that portion of debt that is not
adequately secured,” Shelton, 735 F.3d at 749; see Tarnow,
749 F.2d at 465—but should not lose its lien. Rather, those
courts concluded that the lienholder ought to retain whatever
rights it has under state law to enforce the lien.
Where a claim is timely filed and objected to, on the other
hand, disallowance is not automatic. This case is a good
example: HSBC timely filed its proof of claim, received
service of the Blendheims’ objection, and then had a full and
fair opportunity to contest the disallowance of its claim—it
simply chose not to. Thus, while voiding a lien securing
26 IN THE MATTER OF: BLENDHEIM
an untimely filed claim might be considered a
“disproportionately severe sanction” for untimeliness, In re
Tarnow, 749 F.2d at 465, voidance is not so severe a sanction
in a case like this one, where the bankruptcy court disallowed
the claim because, as the bankruptcy court put it, HSBC “just
slept on its rights” and refused to defend its claim. HSBC
refused to defend its lien after it was challenged by the
Blendheims for failure of proof and because their copy
allegedly bore a forged signature. In these circumstances,
HSBC’s failure to respond is more akin to a concession of
error than a failure to file a timely claim. HSBC simply
forfeited its claim.
We therefore affirm the bankruptcy court’s conclusion
that § 506(d) authorized the voidance of HSBC’s lien. These
facts present a straightforward application of § 506(d)’s
textual command. Though we may one day confront the
question whether an untimely filed claim justifies voiding its
associated lien, that is not the issue presented in this case, and
accordingly, we decline to decide it here.
B. Chapter 20 Debtors May Permanently Void Liens
Voiding a lien under § 506(d) might simply end the story
in a different case, but not so here. As we discussed at Part
III above, the Bankruptcy Code contains several provisions
that reinstate a previously voided lien at the conclusion of a
Chapter 13 proceeding, effectively bringing that lien back to
life. HSBC argues that the only way for a debtor to avert
these lien-reinstating provisions is to obtain a discharge. If
correct, this would create an insurmountable obstacle for
“Chapter 20” debtors, like the Blendheims, who are
statutorily ineligible to obtain a discharge, having filed for
Chapter 13 reorganization within four years of obtaining a
IN THE MATTER OF: BLENDHEIM 27
discharge under Chapter 7. See 11 U.S.C. § 1328(f).
Accordingly, HSBC argues, liens will come back to life, and
lien voidance cannot be made “permanent” after the
completion of a Chapter 13 plan, in circumstances where, as
here, the debtors are ineligible for a discharge.
The question whether discharge-ineligible Chapter 20
debtors may obtain the permanent release of lien obligations
has divided lower courts within our circuit. Compare Frazier
v. Real Time Resolutions, Inc., 469 B.R. 889, 895–901 (E.D.
Cal. 2012) (holding that liens may be permanently voided in
a Chapter 20 case), In re Okosisi, 451 B.R. 90, 99–100
(Bankr. D. Nev. 2011) (same), In re Hill, 440 B.R. 176,
181–82 (Bankr. S.D. Cal. 2010) (same), and In re Tran, 431
B.R. 230, 237 (Bankr. N.D. Cal. 2010) (same), aff’d, 814 F.
Supp. 2d 946 (N.D. Cal. 2011), with In re Victorio, 454 B.R.
759, 779–80 (Bankr. S.D. Cal. 2011) (holding that liens
cannot be permanently voided in a Chapter 20 case), aff’d sub
nom. Victorio v. Billingslea, 470 B.R. 545 (S.D. Cal. 2012),
In re Casey, 428 B.R. 519, 523 (Bankr. S.D. Cal. 2010)
(same), and In re Winitzky, 2009 Bankr. LEXIS 2430, at *14
(Bankr. C.D. Cal. May 7, 2009) (same).4 Two other courts of
appeals and bankruptcy appellate panels from three circuits,
including our own, have also addressed the question, all
concluding that Chapter 20 debtors may void liens
irrespective of their eligibility for a discharge. See In re
Scantling, 754 F.3d 1323, 1329–30 (11th Cir. 2014); In re
Davis, 716 F.3d 331, 338 (4th Cir. 2013); In re Boukatch, 533
B.R. 292, 300–01 (B.A.P. 9th Cir. 2015); In re Cain, 513
4
In re Okosisi, authored by Bankruptcy Judge Bruce Markell, and In re
Victorio, authored by Chief Bankruptcy Judge Peter Bowie, offer strong
articulations of the respective sides of the debate and so we draw from
these opinions in our discussion below.
28 IN THE MATTER OF: BLENDHEIM
B.R. 316, 322 (B.A.P. 6th Cir. 2014); In re Fisette, 455 B.R.
177, 185 (B.A.P. 8th Cir. 2011).5 We will omit the citations
here, but we note that bankruptcy and district courts in other
circuits have also divided over this question. And so we turn
to the next question before us: whether the Bankruptcy Code
permits discharge-ineligible Chapter 20 debtors, like the
Blendheims, to permanently void a lien upon the completion
of a Chapter 13 plan.
5
We note that all of the cases in the split over the permanent lien-
voidance question involve attempts by a debtor to declare a totally
valueless—or “underwater”—lien “unsecured” pursuant to § 506(a). That
section states that an “allowed claim of a creditor secured by a lien on
property . . . is an unsecured claim to the extent that the value of such
creditor’s interest or the amount so subject to setoff is less than the amount
of such allowed claim.” See, e.g., Davis, 716 F.3d at 335. Once declared
unsecured, the majority of courts hold that a debtor may void such a lien
using § 1322(b)(2), which expressly authorizes the modification of the
rights of unsecured creditors. See id. “The end result is that section
506(a), which classifies valueless liens as unsecured claims, operates with
section 1322(b)(2) to permit a bankruptcy court, in a Chapter 13 case, to
strip off a lien against a primary residence with no value.” Id.; see also
Zimmer, 313 F.3d at 1226–27 (joining the majority of courts in holding
that § 1322(b)(2) allows a Chapter 13 debtor to void wholly unsecured
liens). We are not concerned here with the propriety of this form of lien-
stripping.
Here, the bankruptcy court voided HSBC’s secured claim under
§ 506(d) because it was disallowed, not because the claim was unsecured
as defined under § 506(a). For our present purposes, the particular
statutory section under which the lien is originally modified or voided is
neither here nor there; we cite the foregoing cases not for their analysis of
§ 506(a) and § 1322(b)(2), but rather with respect to their discussion of the
permanent lien-voidance question. Whether a lien is voided under
§ 506(d), as here, or under § 1322(b)(2), as in the mine-run of cases, the
essential question remains the same: can a lien voided during a Chapter 13
proceeding remain permanently voided in a case where the debtor is
barred from receiving a discharge?
IN THE MATTER OF: BLENDHEIM 29
1. A discharge is not necessary to close a Chapter 13
case or permanently void a lien
HSBC argues that a discharge is necessary to obtain the
benefits of lien voidance because, apart from conversion or
dismissal, discharge is the only mechanism available to bring
a Chapter 13 case to close in a manner that makes lien
voidance “permanent.” As authority for that proposition,
HSBC points to our decision in In re Leavitt, 171 F.3d 1219(9th Cir. 1999). There, we considered the “appropriate
standard of bad faith as ‘cause’ to dismiss a Chapter 13
bankruptcy petition with prejudice.” Id. at 1220 (footnote
omitted). In the course of affirming the Bankruptcy
Appellate Panel’s dismissal of an action with prejudice upon
findings of bad faith concealment of assets and inflation of
expenses, we stated, “[a] Chapter 13 case concludes in one of
three ways: discharge pursuant to § 1328, conversion to a
Chapter 7 case pursuant to § 1307(c) or dismissal of a
Chapter 13 case ‘for cause’ under § 1307(c).” Id. at 1223
(footnote omitted). As we explained above, dismissal and
conversion reinstate a previously voided lien. See 11 U.S.C.
§§ 348, 349. Lower courts have therefore interpreted this
language in Leavitt as making clear the “legal fact” that “the
only way to make a lien strip ‘permanent’ is by discharge
because conversion or dismissal reinstates the avoided lien.”
Victorio, 454 B.R. at 778; see also Casey, 428 B.R. at 522
(“In the case of a ‘Chapter 20,’ there can be no discharge, and
conversion is not an option. Dismissal is the necessary result,
without discharge, when a debtor performs a plan that leaves
one or more debts wholly or partially unpaid.”). HSBC
characterizes this as the “Leavitt rule” and argues that the
only way for a Chapter 20 debtor to permanently void a
creditor’s lien is through a discharge. Under HSBC’s theory,
the Blendheims’ ineligibility for a discharge means that their
30 IN THE MATTER OF: BLENDHEIM
Chapter 13 case must end in conversion or dismissal, either
of which would restore the lien previously voided under
§ 506(d).
HSBC’s theory rests upon a fatal flaw: our decision in
Leavitt imposed no “rule” that a Chapter 13 case must end in
conversion, dismissal, or discharge, and the Bankruptcy Code
is devoid of any such requirement. In Leavitt, we were not
tasked with deciding all the ways in which a Chapter 13 case
can end. Rather, we were called upon to determine whether
the bankruptcy court below had properly dismissed a bad
faith Chapter 13 petition with prejudice. Our statement that
a Chapter 13 case “concludes in one of three ways” was not
necessary to our holding, and is therefore dictum. That much
should be clear from the context in which the statement was
made; in fact, we made clear in the sentence immediately
following that “[h]ere, we are only concerned with
dismissal.” Leavitt, 171 F.3d at 1223. Our statement in
Leavitt should not be read to describe an exhaustive list of
ways in which a Chapter 13 case may conclude.
Nor has HSBC cited any provision in the Bankruptcy
Code stating that a Chapter 13 plan may end only in
conversion, dismissal, or discharge. Indeed, contrary to the
so-called “Leavitt rule,” the Code contemplates closure of a
case pursuant to § 350(a), which provides that “[a]fter an
estate is fully administered and the court has discharged the
trustee, the court shall close the case.” With closure, no
conversion, dismissal, or discharge is necessary. See Davis,
716 F.3d at 337–38 (adopting the debtor’s argument that “[i]n
a successful Chapter 20 case . . . the plan is completed, and
the case is closed administratively without dismissal or
conversion”); see also Scantling, 754 F.3d at 1330
(concluding that because the creditor’s claim is not secured,
IN THE MATTER OF: BLENDHEIM 31
thus making § 1325(a)(5) inapplicable, “the debtor’s
ineligibility for a discharge is irrelevant to a strip off in a
Chapter 20 case”); see also Okosisi, 451 B.R. at 99 (“The
court finds that in this situation the proper result is for the
court to close the case without discharge. 11 U.S.C.
§ 350(a).”).
Fundamentally, a discharge is neither effective nor
necessary to void a lien or otherwise impair a creditor’s state-
law right of foreclosure. As defined under the Bankruptcy
Code, a “discharge” operates as an injunction against a
creditor’s ability to proceed against a debtor personally. See
11 U.S.C. § 524(a)(2) (a discharge “operates as an injunction
against . . . an action . . . to collect, recover or offset any such
debt as a personal liability of the debtor” (emphasis added)).
Discharges leave unimpaired a creditor’s right to proceed in
rem against the debtor’s property. See Johnson, 501 U.S. at
84 (“[A] bankruptcy discharge extinguishes only one mode of
enforcing a claim—namely, an action against the debtor in
personam—while leaving intact another—namely, an action
against the debtor in rem.”); 4 Collier on Bankruptcy ¶ 524.02
(“[T]he provisions [of § 524] apply only to the personal
liability of the debtor, so they do not affect an otherwise valid
prepetition lien on property.”). It follows logically that there
is no reason to make the Bankruptcy Code’s in rem
modification or voidance provisions contingent upon a
debtor’s eligibility for a discharge, when discharges do not
affect in rem rights. See Fisette, 455 B.R. at 186–87 & n.9
(explaining that the strip off of a lien “is not the equivalent of
receiving a discharge” because “a discharge releases a
debtor’s in personam liability, but it does not affect the lien”);
Hill, 440 B.R. at 182 (“Since the . . . debt was already
discharged, or changed to non-recourse status in the Chapter
32 IN THE MATTER OF: BLENDHEIM
7 case, a second discharge for the Debtors in this Chapter 13
case would be redundant.”).
We acknowledge that there has been considerable
confusion on this point. In Victorio, the bankruptcy court
rejected the notion that closure pursuant to § 350(a)
constituted a “fourth option” for ending a Chapter 13 case,
reasoning in part that “prior to BAPCPA, the only way a lien
strip became permanent in any Chapter 13 case was through
discharge.” 454 B.R. at 775. The court observed that “the
Bankruptcy Code should not be read to abandon past
bankruptcy practice absent a clear indication that Congress
intended to do so,” id. at 776 (quoting In re Bonner Mall
P’ship, 2 F.3d 899, 912 (9th Cir. 1993)), and therefore found
that discharge was a necessary predicate for lien voidance.
However, because bankruptcy discharge, by definition,
affects only in personam liability, it has never served as the
historical means for ensuring that the Bankruptcy Code’s
various mechanisms for modifying or voiding a creditor’s in
rem rights remained in place at the conclusion of a plan. See,
e.g., 11 U.S.C. § 506(d) (discussed above); id. § 1322(b)(2)
(permitting modification of the rights of holders of certain
secured claims and holders of unsecured claims); id. § 522(f)
(permitting debtors to void liens impairing exemptions on
certain assets). No discharge is, or ever has been, necessary
to accomplish the outcome that the Blendheims seek.6
6
Several lower court decisions have articulated the following view:
“Under the Bankruptcy Code, there are two ways to make an enforceable
debt go away permanently. One is to pay it, in full. The other is to obtain
a discharge of any remaining obligation.” Victorio, 454 B.R. at 777
(quoting Casey, 428 B.R. at 522). Section 1325 of the Bankruptcy Code,
which sets forth requirements for confirming a Chapter 13 plan, requires
that holders of “allowed secured claims” “retain the lien securing such
claim” under a proposed plan “until the earlier of the payment of the
IN THE MATTER OF: BLENDHEIM 33
Victorio cited various cases for the proposition that
modifications to creditors’ rights are effective only to the
extent that they can be “discharged,” Victorio, 454 B.R. at
777–78, but this conclusion does not follow from the cases.
Each of the cited cases concerns certain non-dischargeable
debts for which the debtor remains personally liable after the
completion of his Chapter 13 plan. See, e.g., Bruning v.
United States, 376 U.S. 358 (1964) (nondischargeable post-
petition interest on unpaid tax debt remains a personal
liability of the debtor); In re Foster, 319 F.3d 495 (9th Cir.
2003) (non-dischargeable post-petition interest on child
support obligation may be collected personally against the
debtor); In re Ransom, 336 B.R. 790 (B.A.P. 9th Cir. 2005)
(non-dischargeable student loan interest is recoverable by
creditor), rev’d on other grounds sub nom. Espinosa v. United
Student Aid Funds, Inc., 553 F.3d 1193 (9th Cir. 2008); In re
Pardee, 218 B.R. 916 (B.A.P. 9th Cir. 1998) (non-
dischargeable pre-petition interest on student loan debt
remains personal liability of the debtor). These cases stand
for nothing more than the uncontroversial proposition that the
Bankruptcy Code renders certain debts non-dischargeable; if
the debt is non-dischargeable, then a debtor remains
personally liable for that debt. To conclude based on these
cases that “the only way to make a lien strip ‘permanent’ is
by discharge,” is to ignore the Bankruptcy Code’s
unequivocal distinction between in personam and in rem
liability. See 11 U.S.C. § 524 (defining a “discharge” as an
underlying debt determined under nonbankruptcy law; or discharge under
section 1328.” 11 U.S.C. § 1325(a)(5)(B)(i). It is significant that § 1325
applies only to “allowed secured claims”; the provision is silent with
respect to secured claims that were not filed or liens securing disallowed
claims, like the one at issue here. This case does not involve an allowed
but wholly unsecured claim.
34 IN THE MATTER OF: BLENDHEIM
injunction against actions to recover debt “as a personal
liability of the debtor” (emphasis added)). These cases
cannot be read for the proposition that a discharge is
necessary to permanently eliminate in rem liability.
2. Lien voidance does not subvert Congress’s intent in
enacting BAPCPA
HSBC contends that even if discharge is not the sole route
to permanent lien-voidance, permitting Chapter 20 debtors to
achieve permanent lien-voidance circumvents Congress’s
purpose in enacting § 1328(f)’s limitation on successive
discharges. The bankruptcy court in Victorio reasoned that
permitting debtors to achieve “de facto discharge of liability”
through the closure mechanism effects an “end run” around
BAPCPA’s “clear mandate.” 454 B.R. at 780; see also Cain,
513 B.R. at 320–21 (collecting cases subscribing to the “de
facto discharge” argument). The Victorio court also
suggested that Congress did not intend to allow discharge-
ineligible debtors to void liens upon case closure, while
similarly situated, discharge-eligible debtors must complete
all the requirements of a Chapter 13 plan in order to
permanently void a lien. 454 B.R. at 780. Thus, HSBC
argues, allowing the Blendheims to permanently avoid
liability on the lien subverts Congress’s purpose in enacting
BAPCPA and should not be permitted irrespective of whether
there are alternative routes besides a discharge for closing a
Chapter 13 case.
We disagree that permitting the Blendheims to void
HSBC’s lien subverts Congress’s intent in prohibiting
successive discharges. We take Congress at its word when it
said in § 1328(f) that Chapter 20 debtors are ineligible for a
discharge, and only a discharge. Had Congress wished to
IN THE MATTER OF: BLENDHEIM 35
prevent Chapter 7 debtors from having a second bite at the
bankruptcy apple, then it could have prohibited Chapter 7
debtors from filing for Chapter 13 bankruptcy entirely. See,
e.g., 11 U.S.C. § 109(g) (“[N]o individual or family farmer
may be a debtor under this title who has been a debtor in a
case pending under this title at any time in the preceding 180
days . . . .”); see also Johnson, 501 U.S. at 87 (citing express
prohibitions on serial filings and explaining that “[t]he
absence of a like prohibition on serial filings of Chapter 7 and
Chapter 13 petitions . . . convinces us that Congress did not
intend categorically to foreclose the benefit of Chapter 13
reorganization to a debtor who previously has filed for
Chapter 7 relief”). Nothing in the Code conditions Chapter
13’s other benefits or remedies on discharge eligibility. See
Cain, 513 B.R. at 322 (“Lien-stripping is an important tool in
the Chapter 13 toolbox, and it is not conditioned on being
eligible for a discharge.”); Fisette, 455 B.R. at 186 (“We see
no merit in the argument . . . that allowing a strip off in a ‘no
discharge’ Chapter 20 case amounts to allowing the debtor a
‘de facto’ discharge.”). And, for the reasons we have
discussed, we think that if Congress had meant to prohibit
Chapter 20 debtors from voiding or modifying creditors’ in
rem rights, it would not have done so by restricting the
availability of a mechanism that by definition only affects in
personam liability.
Our interpretation gives full effect to Congress’s intent to
prevent abusive serial filings and successive discharges
through BAPCPA. Prohibiting successive discharges helps
curb abuse of the bankruptcy system by ensuring that a debtor
once granted a discharge of debt is not granted yet a second
discharge just a few years later. A debtor who has racked up
significant credit card debt and received a Chapter 7
discharge, for example, will not obtain a second clean slate
36 IN THE MATTER OF: BLENDHEIM
upon the filing of a Chapter 13 petition. Further, we agree
with the district court that reaching the contrary conclusion
would create “an extremely harsh result” that is inconsistent
with the Bankruptcy Code’s text and purpose. Congress
created the Chapter 13 mechanism to permit eligible debtors,
who are capable of diligently meeting their obligations under
plans, to reorganize their financial affairs and pay a greater
amount on debts than they would have otherwise done under
a Chapter 7 liquidation. Section 1328(f) does not purport to
interfere with the important lien-stripping “tool in the Chapter
13 toolbox.” Cain, 513 B.R. at 322; see Davis, 716 F.3d at
338 (positing that “Congress intended to leave intact the
normal Chapter 13 lien-stripping regime where a debtor could
otherwise satisfy the requirements for filing a Chapter 20
case”).
Interpreting the Bankruptcy Code to permit lien
modification through case closure does not, as Victorio
warned, place discharge-ineligible debtors like the
Blendheims in a better position than discharge-eligible
debtors. Victorio posited that discharge-eligible debtors who
fail to complete their plans will see their previously voided
liens reinstated under § 349’s dismissal provision, whereas
discharge-ineligible Chapter 20 debtors “can just have the
case closed and thereby make the lien []voidance
‘permanent.’” 454 B.R. at 780. We respectfully disagree.
Nothing in the Code compels a bankruptcy court to close,
rather than dismiss, a Chapter 13 case when a debtor fails to
complete his plan. In addition, the availability of case closure
does not eliminate a bankruptcy court’s duty to ensure that a
debtor complies with the Bankruptcy Code’s “best interests
of creditors” test, 11 U.S.C. § 1325(a)(4), and the good faith
requirement for confirming a Chapter 13 plan, id.
§ 1325(a)(3). Rather, the bankruptcy court here properly
IN THE MATTER OF: BLENDHEIM 37
conditioned permanent lien-voidance upon the successful
completion of the Chapter 13 plan payments. If the debtor
fails to complete the plan as promised, the bankruptcy court
should either dismiss the case or, to the extent permitted
under the Code, allow the debtor to convert to another
chapter.
***
In sum, we do not interpret BAPCPA to limit a debtor’s
access to Chapter 13 lien-modification provisions by virtue of
§ 1328(f)’s limitation on successive discharges, and we
conclude that a debtor’s ineligibility for a discharge has no
bearing on his ability to permanently void a lien. We join the
Fourth and Eleventh Circuits in concluding that Chapter 20
debtors may permanently void liens upon the successful
completion of their confirmed Chapter 13 plan irrespective of
their eligibility to obtain a discharge. Scantling, 754 F.3d at
1329–30; Davis, 716 F.3d at 338. Therefore, we hold that the
Blendheims’ ineligibility for a discharge does not prohibit
them from permanently voiding HSBC’s lien.
C. Voidance of the Lien Satisfied Due Process
Next, we turn to HSBC’s claim that the bankruptcy court
failed to afford HSBC due process before voiding its lien.
Whether adequate notice has been given for the purposes of
due process is a mixed question of law and fact that we
review de novo. In re Brawders, 503 F.3d 856, 866 (9th Cir.
2007).
HSBC raises two related arguments in support of its due
process claim, both of which essentially claim a lack of
adequate notice. First, HSBC argues that the validity of its
38 IN THE MATTER OF: BLENDHEIM
lien was not “effectively” determined under the procedural
requirements set forth under the Bankruptcy Rules. Federal
Rule of Bankruptcy Procedure 7001(2) requires actions
determining the “validity, priority, or extent of a lien” to be
brought in an adversary proceeding, which imposes certain
notice requirements on plaintiffs. See Fed. R. Bankr. P. 7004
(requiring service of adversary summons and complaint in
compliance with Federal Rule of Civil Procedure 4).
Although HSBC acknowledges that the Blendheims initiated
an adversary proceeding to bring their motion for summary
judgment seeking lien voidance, and thus the lien was
“technically voided in the Adversary Proceeding,” HSBC
contends that the lien was substantively voided by the
disallowance order because the disallowance of its claim
rendered voidance a “fait accompli.” Accordingly, HSBC
argues, the validity of its lien was actually decided outside of
an adversary proceeding. Second, HSBC argues that the
bankruptcy court “allowed [HSBC]’s lien to be avoided ‘by
ambush,’” because the Blendheims never mentioned their
intent to void HSBC’s lien in their 2009 objection to the
proof of claim. According to HSBC, not only did the
Blendheims fail to give notice of their intent to seek voidance
of the lien, but they affirmatively represented in several court
filings that the lien was valid—suggesting that they would not
seek to void the lien.
Both of HSBC’s arguments fail under the Supreme
Court’s decision in United Student Aid Funds, Inc. v.
Espinosa, 559 U.S. 260 (2010). In that case, the debtor filed
a Chapter 13 petition and proposed a plan providing for
repayment of the principal and discharge of the accrued
interest on student loans he owed to United Student Aid
Funds, Inc. (“United”). Id. at 264. After being served with
notice of the plan, United filed a proof of claim reflecting
IN THE MATTER OF: BLENDHEIM 39
both the principal and the accrued interest on the loan. Id. at
265. United did not, however, object to the plan’s proposed
discharge of interest or Espinosa’s failure to initiate an
adversary proceeding to determine the dischargeability of that
debt. The bankruptcy court eventually confirmed the plan,
and the Chapter 13 Trustee mailed United a notice of the plan
confirmation, which advised United of its right to object
within 30 days. Id. United did not object, and after Espinosa
successfully completed the plan, the court granted him a
discharge of the student loan interest. Id. at 265–66.
It was not until three years later, when United attempted
to collect on the unpaid interest and Espinosa moved for an
order holding United in contempt for violating the discharge
injunction, that United raised an objection to the discharge
order. Id. at 266. United complained that the Bankruptcy
Code requires student loans to be discharged in an adversary
proceeding, and because Espinosa did not initiate any such
proceeding or serve United with an adversary complaint,
United was deprived of its due process rights. Id. The Court
rejected United’s argument, explaining that the standard for
constitutionally adequate notice is “notice ‘reasonably
calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an
opportunity to present their objections.’” Id. at 272 (quoting
Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306,
314 (1950)). Because United received actual notice of the
filing and contents of Espinosa’s plan, which United
acknowledged by filing a proof of claim, the Court
concluded, “[t]his more than satisfied United’s due process
rights.” Id. (emphasis added). Accordingly, the Court held
that there was no due process violation. Id.
40 IN THE MATTER OF: BLENDHEIM
Espinosa indicates that regardless of whether HSBC’s
lien was technically voided in the adversary proceeding or
upon entry of the default order, due process was satisfied
when HSBC received notice that the Blendheims filed their
objection to its proof of claim. Once HSBC received notice
of that filing, it was deemed to have notice that its claim
might be affected and it ignored the ensuing proceedings to
its peril. See In re Gregory, 705 F.2d 1118, 1123 (9th Cir.
1983) (holding that for due process purposes, when the holder
of a claim receives notice that the debtor has initiated
bankruptcy proceedings, “it is under constructive or inquiry
notice that its claim may be affected, and it ignores the
proceedings to which the notice refers at its peril”). It bears
emphasis that all that is constitutionally required for adequate
notice is information sufficient to alert a creditor that its
rights may be affected. See id. Due process does not demand
the degree of specificity of notice to which HSBC claims
entitlement. It is neither the court’s nor the debtor’s
responsibility to ensure that a creditor fully understands and
appreciates the consequences of the bankruptcy proceeding.
Rather, it is HSBC’s responsibility, once apprised of the
bankruptcy proceeding, to investigate the potential
consequences in store for its lien. HSBC did not have to file
a claim to preserve its lien; but once it chose to do so, it
subjected itself to the jurisdiction of the bankruptcy court and
its rules. And once the Blendheims objected to HSBC’s
claim pursuant to § 502(a), there can be no doubt that HSBC
was on notice that there might be consequences.
Indeed, the record shows that HSBC’s inexplicable failure
to assert its rights, and not any defect in process, led to its
predicament here. After HSBC filed a proof of claim in the
Blendheims’ Chapter 13 bankruptcy, the Blendheims
objected to the proof of claim and served HSBC’s servicing
IN THE MATTER OF: BLENDHEIM 41
agent with a copy of the objection. HSBC failed to respond.
Then, the bankruptcy court entered the default order
disallowing HSBC’s claim, and again, HSBC was served with
a copy of the order. Once again, HSBC failed to respond,
taking no action to undo the disallowance order. The
Blendheims then initiated adversary proceedings declaring
their intent to void the lien and the bankruptcy court advised
HSBC to move to set the disallowance order aside. Still,
HSBC did nothing. HSBC waited over a year and a half after
the default order was entered before it finally moved to set
aside the disallowance order. Predictably, the court found no
excusable neglect present on these facts and declined to grant
HSBC’s request. Surely, the process given was sufficient to
put HSBC on notice that its lien might be affected.
Far from revealing a due process violation, the record
shows that HSBC’s rights were honored at every turn.
HSBC’s own failure to assert its rights, which resulted in the
entry of the lien-voidance order, does not make the lien-
voidance order constitutionally defective. Accordingly, we
affirm the district court’s determination that the bankruptcy
court afforded HSBC due process.
D. The Chapter 13 Petition was Filed in Good Faith
A Chapter 13 petition may be dismissed “for cause,”
pursuant to § 1307(c) of the Bankruptcy Code, if it was filed
in bad faith. In re Eisen, 14 F.3d 469, 470 (9th Cir. 1994)
(per curiam). We review for clear error a bankruptcy court’s
determination whether or not a plan was filed in bad faith. Id.
In determining whether a debtor acted in bad faith, a
bankruptcy judge must review the “totality of the
circumstances,” and consider the following factors:
42 IN THE MATTER OF: BLENDHEIM
(1) whether the debtor misrepresented facts in
his petition or plan, unfairly manipulated the
Bankruptcy Code, or otherwise filed his
Chapter 13 petition or plan in an inequitable
manner;
(2) the debtor’s history of filings and
dismissals;
(3) whether the debtor only intended to defeat
state court litigation; and
(4) whether egregious behavior is present.
Leavitt, 171 F.3d at 1224 (internal quotation marks, citations,
and alterations omitted). “[B]ankruptcy courts should
determine a debtor’s good faith on a case-by-case basis,
taking into account the particular features of each Chapter 13
plan.” In re Goeb, 675 F.2d 1386, 1390 (9th Cir. 1982).
HSBC argues that the Blendheims’ Chapter 13 petition
was filed in bad faith for two reasons. First, the Blendheims
maintained two simultaneous bankruptcy proceedings at once
because they filed the Chapter 13 proceeding while the
Chapter 7 was technically still open. Second, the Blendheims
filed the Chapter 13 proceeding to “re-invoke the automatic
stay and stop [HSBC]’s foreclosure after allowing the stay to
be lifted” following the Chapter 7 case.
Although we have held that successive filings do not
constitute bad faith per se, In re Metz, 820 F.2d 1495, 1497
(9th Cir. 1987), we have never addressed whether
simultaneous filings should be treated differently. Two of our
sister circuits have addressed whether a debtor is permitted to
IN THE MATTER OF: BLENDHEIM 43
maintain simultaneous bankruptcy cases as a matter of law,
reaching different conclusions: In re Sidebottom, 430 F.3d
893 (7th Cir. 2005) (concluding that simultaneous
proceedings are impermissible per se), and In re Saylors,
869 F.2d 1434 (11th Cir. 1989) (rejecting a per se prohibition
on simultaneous filings). In Sidebottom, the Seventh Circuit
rejected the rule, adopted by some courts, that a debtor can
maintain simultaneous bankruptcies relating to the same debt.
430 F.3d at 898; see also In re Jackson, 108 B.R. 251, 252
(Bankr. E.D. Cal. 1989) (“The weight of authority holds that
once a bankruptcy case is filed, a second case which affects
the same debt cannot be maintained.”). Reasoning that “the
Code is designed to resolve a debtor’s financial affairs by
administration of a debtor’s property as a single estate under
a single chapter within the code,” the court instead sided with
other courts that have adopted a per se prohibition on
simultaneous bankruptcy proceedings. Sidebottom, 430 F.3d
at 898 (internal quotation marks omitted). The Seventh
Circuit therefore concluded that the debtors in that case could
not proceed with their Chapter 13 case because the petition
was filed while the Chapter 7 case remained open. Id. at 899.
The Eleventh Circuit, by contrast, has rejected any per se
rule against filing a Chapter 13 petition during the pendency
of a Chapter 7 case. Saylors, 869 F.2d at 1437. In Saylors,
the Eleventh Circuit observed that Congress enacted Chapter
13 to “create[] an equitable and feasible way for the honest
and conscientious debtor to pay off his debts rather than
having them discharged in bankruptcy.” Id. at 1436 (quoting
H.R. Rep. No. 86-193, at 2 (1959)). It reasoned that Chapter
13 reorganizations remain accessible to debtors who have
already received a Chapter 7 discharge, and thus barring
debtors from Chapter 13 reorganization “would prevent
deserving debtors from utilizing the plans.” Id. at 1438. “As
44 IN THE MATTER OF: BLENDHEIM
a practical matter,” the court also noted, “considerable time”
often elapses after a Chapter 7 debtor receives a discharge but
before a trustee can close the case. Id. It thus concluded that
a per se rule against filing a Chapter 13 proceeding while a
Chapter 7 case remained open (although the discharge had
been issued) “would conflict with the purpose of Congress in
adopting and designing chapter 13 plans.” Id. at 1437.
Rather than prohibiting such filings across the board, the
court concluded that the Bankruptcy Code’s good faith
requirement “is sufficient to prevent undeserving debtors
from using this procedure, yet does not also prevent deserving
debtors from using the procedure.” Id. at 1436. After
reviewing the bankruptcy court’s findings regarding the
debtor’s good faith and finding no clear error, the court
affirmed the bankruptcy court’s conclusion that the confirmed
plan was proposed in good faith. Id. at 1438–39.
We have already acknowledged the host of benefits that
Chapter 13 reorganizations offers to debtors and have found
no indication that Congress intended to deny such benefits to
Chapter 20 debtors—who, by definition, file their Chapter 13
cases hard on the heels of a Chapter 7 discharge. Our
conclusion here follows almost as a matter of course. We
agree with the Eleventh Circuit’s reasoning and reject a per
se rule prohibiting a debtor from filing for Chapter 13
reorganization during the post-discharge period when the
Chapter 7 case remains open and pending. Because nothing
in the Bankruptcy Code prohibits debtors from seeking the
benefits of Chapter 13 reorganization in the wake of a
Chapter 7 discharge, we see no reason to force debtors to wait
until the Chapter 7 case has administratively closed before
filing for relief under Chapter 13. We also agree with the
Eleventh Circuit that the fact-sensitive good faith inquiry, in
which courts may examine an individual debtor’s purpose in
IN THE MATTER OF: BLENDHEIM 45
filing for Chapter 13 relief and take into account the unique
circumstances of each case, is a better tool for sorting out
which cases may proceed than the blunt instrument of a flat
prohibition.
This conclusion also better comports with our decision in
In re Metz. In Metz, we concluded that it did not constitute
bad faith per se for a Chapter 13 debtor to include a mortgage
claim in his plan of reorganization, even if his personal
liability on the mortgage was discharged in a prior Chapter 7
proceeding.7 820 F.2d at 1497–98. We declined to prohibit
successive filings across the board, instead applying our
established “totality of the circumstances” test to determine
whether the debtor filed his successive petition in good faith.
Id. at 1498. We upheld the bankruptcy court’s good faith
determination as not clearly erroneous, observing that the
debtor had recently received an increase in salary and
explaining that “[s]uch a bona fide change in circumstances”
is precisely the kind of evidence that a bankruptcy judge
should examine to determine whether a successive filing is
proper. Id. at 1498–99.
7
Four years after our decision in Metz, the Supreme Court expressly
approved of successive filings of Chapter 7 and Chapter 13 cases in
Johnson v. Home State Bank. 501 U.S. at 80. While the Court did not
reach the issue of good faith, it determined that nothing in the Bankruptcy
Code prohibits successive filings and noted that Chapter 13 contains
various provisions protecting creditors, strongly implying that a successive
filing does not itself constitute abuse of the bankruptcy system. See id. at
88 (“[G]iven the availability of [Chapter 13’s creditor-protective]
provisions, . . . we do not believe that Congress intended the bankruptcy
court to use the Code’s definition of ‘claim’ to police the Chapter 13
process for abuse.”).
46 IN THE MATTER OF: BLENDHEIM
Examining the facts presented here, and considering the
totality of the circumstances, the bankruptcy court did not err
in finding that the petition and plan were filed in good faith.
The Blendheims received their Chapter 7 discharge in
January 2009 and filed their Chapter 13 petition the following
day; their Chapter 7 case was not closed until November
2010. Contrary to HSBC’s contention that the Blendheims
sought Chapter 13 relief solely to avert foreclosure, the
bankruptcy court found that the Blendheims sought Chapter
13 protection for additional, valid reasons. The Blendheims
filed their Chapter 13 case to deal with fraud claims and other
issues surrounding the first-position lien, to repay secured
debt owed to their homeowners association, and to clarify
how post-petition debts would be paid. According to the
court, the Blendheims “do not appear to be serial ‘repeat
filers’ [who are] systematically and regularly abusing the
bankruptcy system.” And with respect to the automatic stay,
the court stated: “Although the Chapter 13 filing appears to
be motivated by Debtors’ wish to avoid the foreclosure sale
of their Residence, the Court does not find that filing for
Chapter 13 bankruptcy under those circumstances necessarily
constitutes bad faith.” It explained, “[m]any Chapter 13
debtors file for bankruptcy on the eve of foreclosure sale as
a last resort.” The bankruptcy court did not clearly err in
concluding that the Blendheims filed their Chapter 13 petition
in good faith on these facts.
V. CONCLUSION
We conclude that the bankruptcy court properly voided
HSBC’s lien under § 506(d), confirmed the Blendheims’
Chapter 13 plan offering permanent voidance of HSBC’s lien
upon successful plan completion, and found no due process
violation or bad faith purpose in filing the Chapter 13
IN THE MATTER OF: BLENDHEIM 47
petition. Accordingly, we affirm the bankruptcy court’s lien-
voidance order, plan confirmation order, and plan
implementation order.
With respect to the Blendheims’ cross-appeal for
attorneys’ fees, we conclude that the district court lacked
jurisdiction to determine whether the Blendheims were
entitled to attorneys’ fees because this issue was not
addressed, in the first instance, by the bankruptcy court. See
In re Vylene Enters., Inc., 968 F.2d 887, 895 (9th Cir. 1992)
(“[W]e do not have jurisdiction to review cases in which the
district court affirms an order of the bankruptcy court that is
not final.”). Accordingly, we vacate the district court’s denial
of fees and instruct the district court to remand to the
bankruptcy court for a determination of the Blendheims’
entitlement to attorneys’ fees in the first instance.
The judgment of the district court is
AFFIRMED in part, VACATED in part, and
REMANDED. Costs on appeal are awarded to Appellees.